Employee share schemes – myths busted!
It’s expensive to set up
One reason to set up a share plan is to retain staff. There will be an initial outlay but how does that compare to the costs to your business of losing key staff members – not to mention the costs of recruiting replacements?
The cost of a share plan will vary according to the type of plan you’re using, the number of employees and the complexity of the design. A simple “exit only” share option scheme may be cheaper than you think.
It’s too complicated
A share plan is as complicated as you want it to be. In fact, RM2’s usual approach is to make it as simple as possible. If participants don’t understand the scheme, it’s unlikely to prove motivational.
Simplicity will also keep your costs down!
I don’t want to give up control of my business
You don’t have to. You can use an exit only option arrangement, so that employees never become shareholders in the business until a sale happens. It’s often possible to use non-voting shares. Or you can simply limit the percentage of equity used so employees don’t have enough voting power to affect the decision making processes.
It’s easier just to use cash bonuses
This is undeniable – but horses for courses. Cash bonuses tend to be a short term reward – and there’s also a risk that regular annual bonuses start to be taken for granted by employees, thus losing motivational impact. If you want your employees to think long term, share based rewards, which are linked to the long term growth in the value of the business, might be a better approach.
Cash bonuses are never tax efficient. Certain share plans can result in very low tax charges – in some cases, zero tax. There are also NICs savings.
What if people leave?
Dealing with leavers is very important. In the case of a share option plan, you can ensure that options lapse when employees leave. In the case of a share plan, you can ensure that the employee must sell their shares back. In many cases, you can adapt the leaver rules according to your particular requirements.